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May 2011 end of term review questions -Tuesday Lecture

May 2011 end of term review questions -Tuesday Lecture -...

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Question 1 Ms. Lancaster starts a CCPC in 1970 with an equity investment of $200,000, of which the corporation uses $100,000 to purchase land. Two years later, the V-day value of the land is $150,000. In 2010, Ms. Lancaster sells the land for $1 million and subsequently decides to wind-up the business and retire. The proceeds of distribution on the remaining business assets is $3 million and no capital gains or losses occur on those distributions. There are $1.4 million in outstanding liabilities. During the 80’s and 90’s, she had contributed an additional $1,000,000 into the business in return for shares. The corporation’s Capital Dividend Account had a balance of $90,000 before the disposition of any assets began. Assume the tax rate is 20%. What is Ms. Lancaster’s taxable dividend and taxable capital gain on the wind-up of the corporation?
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Question 2 Figner Co,a financial company, and Chong Co, a rental corporation with several rental buildings, are both CCPCs. Both of them own Kerr Co 60% and 5% respectively.
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